The end of a market-punishing rate hiking cycle may be in sight, but uncertainty over stock valuations and the economic outlook is keeping investors on alert for more turbulence ahead.
“The Fed getting ready to move to the sidelines is one step but it won’t be a cure all,” said Angelo Kourkafas, an investment strategist at Edward Jones. The gains pushed the S&P 500′s forward price-to-earnings ratio up to 18.2 times, compared with a historic average P/E of 15.6 times, according to Refinitiv Datastream - a level some investors say may be too pricey.
At the same time, many investors also think the Fed’s rate hikes are only starting to weigh on U.S. growth and an economic downturn lies ahead - though Fed Chairman Jerome Powell said on Wednesday that he believes the United States was likely to avoid a recession, while various gauges such as employment and retail sales have pointed to a relatively robust economy.
A Wednesday report from Citi projected a “mild and shallow” U.S. recession in the fourth quarter of 2023 along with a list of stocks the bank’s analysts believe will outperform in a downturn, including Google-parent Alphabet, Amazon and Walmart.